A business line of credit offers a convenient and flexible source of funding that lets you run your business on your terms, 365 days a year, for optimal peace of mind. For small business owners, it’s a great way to manage seasonal fluctuations, cover dips in cash flow or settle unpaid invoices.

How does a business line of credit work? 

A business line of credit is a facility that allows a business to ‘draw down’, or borrow an agreed amount of funds, up to a limit. 

When you take out a business line of credit, the first step is to determine the amount you want available to you. Once the amount is approved, you can draw down all or part of the available funds. 

Let’s say your retail business imports ceramics from overseas and wholesales them to local gift shops. In this example: 

  • You have obtained a $25,000 line of credit to help manage unexpected cash flow gaps when running your small business. 
  • When you receive a large order from a retailer, you can draw down $10,000 from the line of credit to purchase the goods you need to fill the order. 
  • Then, when the retailer settles its invoice, you can use these funds to pay back the $10,000. 
  • You only pay interest on the $10,000 for the time you used it. 

Find out more and apply for a Prospa Line of Credit.

As this example shows, a line of credit can offer business owners two major benefits:

1. Increased flexibility

You can access funds up to your approved facility limit, anywhere, anytime. Once the facility is open, you can use and reuse the funds as much or as little as you want, and decide for yourself how you use the funds – for wages, stock, equipment or whatever business expense you choose. 

When you use the Prospa customer portal, you can:  

  • draw down from your account up to your approved balance,  
  • pay bills, staff and suppliers,  
  • make purchases, 
  • pay staff or suppliers directly from the online portal.

When you draw down on your business line of credit, a minimum repayment schedule is established. You can also make additional repayments any time you like – or just the minimum – over a 24-month term, with the option to renew. And you only pay interest on what you use. 

2. Improved cash flow

A line of credit can help you stay in control of your business finances by providing flexible, ongoing access to funds, so you can confidently manage cash flow fluctuations. This could be a quiet month, the gap between purchasing materials and being paid for your work, or the time between paying for imported products and selling them 

Paying interest on just the funds you use could help regulate your cash flow and, if managed properly, reduce the cost of borrowing.